United States: Q3 GDP revised up amid inventory buildup

In the third quarter, GDP expanded at a seasonally adjusted annualized rate (SAAR) of 2.1%, according to the second estimate released by the Bureau of Economic Analysis (BEA) on 24 November. The print marked an upward revision from the 1.5% increase reported in the advance estimate, and matched market expectations. The result shows that the economy decelerated less from the 3.9% growth registered in Q2 than originally thought. Private consumption growth, the motor of the economy, was not as strong as first reported but remained on solid footing. Export growth was also revised down, but investment was stronger and inventories were much higher than initially suggested.

On the domestic side of the economy, private consumption rose 3.0%, which was below the 3.2% growth reported in the advance estimate. Non-residential fixed investment slid from a 4.1% increase in Q2 to a 2.4% expansion in Q3 (advance estimate: +2.1% quarter-on-quarter SAAR). Meanwhile, residential fixed investment grew 7.3%, which was above the 6.1% rise reported in the advance estimate. Government spending was up 1.7% in Q3, which was unchanged from the advance estimate. Moreover, business inventories presented a much smaller drag on GDP than initially reported.

On the external front, exports were revised significantly downward, while imports were slightly stronger than originally reported. According to the second estimate, exports increased 0.9% in Q3 (advance estimate: +1.9% qoq SAAR). This marked a massive drop from the 5.1% expansion registered in Q2. Imports grew 2.1% in the first quarter (advance estimate: +1.8% qoq SAAR). As a result, the external sector’s net contribution to overall growth deteriorated from plus 0.2 percentage points in Q2 to minus 0.2 percentage points in Q3.

The Federal Reserve expects economic growth to range between 1.9% and 2.5% in 2015 and between 2.1% and 2.8% in 2016. FocusEconomics Consensus Forecast panelists expect GDP to expand 2.5% in 2015, which is unchanged from last month’s forecast. For 2016, the panel also expects the economy to expand 2.5%, which is down 0.1 percentage points from last month’s estimate.